Determination of pecuniary penalty for admitted contraventions of s 22 Financial Markets Conduct Act 2013 (false and misleading representations) – determination of maximum pecuniary penalty – appropriate starting point – adjustment for circumstances of defendant – court’s role in approving agreed pecuniary penalty
Financial Markets Authority v AA Insurance Ltd [2024] NZHC 2869 per O’Gorman J
Section 22 of the Financial Markets Conduct Act 2013 prohibits the making of false or misleading representations in trade.
The Financial Markets Authority (FMA) brought proceedings against AA Insurance Ltd (AAI) seeking a pecuniary penalty for alleged breaches of s 22. These included failing to apply multi-policy and membership discounts along with guaranteed no claims bonuses; misleading customers about its multi-policy discount in marketing material; and misrepresenting that certain eligible customers would receive its guaranteed no claims bonus for life.
AAI admitted that its conduct had breached s 22.
The issue for the court to determine was the appropriate pecuniary penalty order.
The primary causes of the breaches were failures and deficiencies in AAI’s systems and processes, which had occurred over an extended time and affected a significant number of customers.
The total number of customers over-charged because of AAI failing to apply the discounts was more than 220,000. The total amount over-charged was approximately $11.12 million.
AAI paid $15.6m in compensation to customers affected by the discount issues (including use-of-money interest). AAI also paid $883,618 (including use-of-money interest) to charities in respect of customers who could not be located or did not respond.
In addition to its extensive remediation efforts, it was agreed that AAI was entitled to credit for self-reporting, full co-operation with the FMA and making early admissions.
The FMA and AAI agreed to recommend to the court a pecuniary penalty order of $6.175m. This was based on a starting point of $9.5m (the highest individual starting point for any breach of s 22), with a 35% discount applied for mitigating factors.
The court needed to be satisfied that this proposed agreed pecuniary penalty satisfied the statutory objectives, reflected the particular circumstances of the case and that the final figure was within the proper range.
Applicable principles: Financial Markets Conduct Act 2013, s 22, 38, 489, 490, 492, 493 – what is the maximum available pecuniary penalty? ($151m) – what is the appropriate starting point? ($9.5m) – what is the appropriate discount for mitigating factors (self-reporting, co-operation with FMA, early admissions and remediation efforts)? (35%) – is end penalty of $6.175m within the proper range? (yes)
Held: Declarations made as to specific contraventions of s 22 of the Act admitted by AAI. Pecuniary penalty of $6.175m imposed. Order made that under s 493 of the Act, the penalty would be applied first to the FMA’s costs in bringing the proceedings.
Note: The court noted that the objective of general deterrence was important and observed that customers are entitled to trust the accuracy of their insurer’s systems and processes, “[c]ustomers are entitled to feel secure that insurance premiums will be charged, and discounts applied, in accordance with policy terms and as represented in marketing material. Customers cannot be expected to double- check the precise details of transactions”.
Also see: FMA sues ASB Bank for misconduct; secures $6.175m penalty against AA Insurance
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